Research Paper On The Benefits Of

Publicity & PR Value

We recently came across a research study, entitled Benefits of Publicity
by Umit G. Gurun, of the University of Texas at Dallas.
With his permission, we are sharing his paper, which investigates whether
corporate board members with media expertise influence firms media
coverage and media slant. Firms with a media professional on the board of
directors receive more media coverage, and articles written about them
include fewer negative words compared with articles on control firms.
These findings highlight the importance of the composition of the board of
directors as a determinant of information disclosure mechanism.
To quote his paper:
News coverage is an important source of information about a firm.
Because most outsiders learn about a firm from news articles written about
it, firms have incentives to manage how they are covered in the news so
that they are presented in the most favorable light possible. This paper
presents evidence that the composition of a firms board of directors can
affect the way the firm is covered in the news. Specifically, we show that a
board member with media expertise enhances the firms ability to manage
how the firm is portrayed in mass media.
We define an individual with past experience in a news organization as an
owner, top executive, board member, editor, journalist, and so on as a
media professional (MP). We determine a firms willingness to actively
influence media relations by the existence of such individuals on that firms
corporate board.
We then track the firms news coverage and qualitative content of news
stories (slant) in a large database of articles from Wall Street Journal, New
York Times, and eight major local newspapers that meet our data
requirements (Boston Globe, Chicago Sun Times, Denver Post, Pittsburgh
Post-Gazette, San Francisco Chronicle, Seattle Post-Intelligencer, St. Louis
Post-Dispatch, and Washington Post) between 1996 and 2006. We define

a firms coverage in a period as the number of times it is mentioned in a

news article during the period. We define slant as the percentage of
negative minus positive financial words in these firm- specific news stories.
Following Loughran and McDonald (2011), Tetlock, Saar-Tsechansky, and
Macskassy (2008), and Gurun and Butler (2012), we use textual analysis to
identify these negative and positive words.
We show that firms with MPs on their boards experience both greater
coverage and more favorable slant. Having an MP increases the number of
articles mentioning the firm in a year by 33%, which corresponds to one
more article a year for an average firm in the sample. Having an MP
decreases the slant in articles mentioning the firm in a year by 21%;
however, most of this slant effect is subsumed by time- invariant
unobserved firm characteristics.
We then move on to potential explanations for these results. We
investigate three distinct hypotheses. The first hypothesis (media
management hypothesis) suggests that MPs are instrumental in creating
awareness within a firm of the importance of its media coverage. This could
happen if firms hire MPs purposely to become more efficient in dealing
with the media, or if MPs create awareness within the firm regarding the
importance of media coverage. This hypothesis suggests that appointment
of MPs should be correlated with better representation of the firm in the
media, in terms of both increased coverage and content of the coverage.
In other words, MPs provide expertise that other board members and other
media channels do not. Results by and large are consistent with this
hypothesis.
The second hypothesis (connections hypothesis) suggests that MPs use
their personal connections to influence media coverage and slant in the
media outlets they are directly connected with. To investigate the relative
importance of these roles (connections vs. expertise), we restrict the
sample to those MPs that have direct ties to Wall Street Journal and New
York Times to see if MPs affect their firms coverage and slant in their
connected journal. We find that these media outlets do not seem to have
greater coverage or more favorable slant for firms with MPs who have
direct ties to these two newspapers.
The third hypothesis (journalist attention hypothesis) suggests that
journalists pay more attention to events occurring in firms that have MPs.

According to this hypothesis, Coca-Cola would be more likely than Pepsi

to have coverage in the New York Times if Peter Rice, CEO of Fox
Entertainment Group, were on the Coca-Cola board. This demand-side
hypothesis suggests that MPs attract more media attention to a firm, rather
than suggesting that firms use MPs to become more visible to the outside
world. Although this mechanism predicts increased coverage, it does not
predict press releases of MP firms to be pickup more by media. Our
findings show that media, inconsistent with this demand-side explanation,
disproportionately picks up press releases of MP firms.
Miller (2006) argues that media are more inclined to report stories that are
likely to be sensational and interesting to the public. Using coverage and
slant around specific sensational stories, we investigate whether firms with
MPs (who were hired before the events occurred) weather crisis better
compared with other firms.
We identify two categories of possibly sensational stories involving
conflicts between firms and their two major stakeholders (customers and
employees). The first category of sensational events relates to product
safety. Product safety events are events in which firms paid substantial
fines or civil penalties or were involved in major controversies or regulatory
actions due to product safety issues. The second category relates to
employee safety. Employee safety events involve cases in which firms paid
substantial fines or civil penalties for violations of employee health and
safety standards. To examine how MPs actually help firms achieve better
media coverage, we introduce industry-wide shocks to product- and
employee-safety-related issues. We identify exogenous shocks by the ratio
of firms in a given industry (as defined by the 30 Fama French industry
definition) experiencing a product- or employee-safety-related problem.
We assume that industries with a higher ratio of violations are likely to
experience higher media scrutiny. We find that media coverage of firms
with MPs is higher especially during these times, suggesting that the
expertise channel works during times when it is valuable for the firm.
The influence of MPs on media coverage does not necessarily mean the
media are in favor of these firms when the truth is something else. We
show that firms with MPs engage in more corporate social responsibility
(CSR) activities following a bad event, suggesting that firms with MPs are

better positioned to find means to communicate newsworthy stories out to

journalists, or to do things that are more newsworthy.
Board members with media expertise may be better at advising their firms
to work with effective public or investor relations firms. Effective PR firms
provide connections to networks of media professionals who may lower
information acquisition costs for journalists, so journalists may be more
inclined to cover firms represented by the PR firm with the information
supplied by the firm. This could happen if information flow within the
network lowers information acquisition costs to journalists through easier
access to key people in the firm, who may be more forthcoming with
information if a journalist within the network approaches them. Consistent
with these conjectures, we find that press releases of firms with MPs are
more likely to be picked up by the press. Specifically, press releases of
firms with MPs are 8.3% more likely to receive media coverage within five
days than those without. We do not find, however, that the slant of news
following the press release is more favorable for firms with MPs.
Given that the unconditional probability of having a press release followed
by a media report is 23 %, this 8.3% increase in probability is economically
significant.
The effect of an MP on news coverage is more pronounced if the MP is or
was an owner, a top executive, or a board member in the media rather than
a person in another position (e.g., a journalist). To the extent that highranking MPs are more likely to have influence in efficiently managing press
relations, these additional findings support the notion that MPs are
influential in managing a firms media relations. We do not view the MP
channel to be the sole strategy a firm can use to manage media relations.
Other options include using an internal or external investor/press relations
department (Solomon 2012) or increasing advertising (Gurun and Butler
2012). In our analysis, we include these variables to investigate the
incremental role of MPs in media management. Collectively our results
suggest that the composition of a firms board of directors can affect the
way it is covered in the news: firms with MPs on their boards enjoy both
more coverage and more favorable news coverage, and the effect of MP is
incremental to other channels previously documented in the literature.

The Public Relations community thanks Umit G. Gurun for his 42 page
paper. We excerpted parts of it with his permission. He may be reached at
umit.gurun@utdallas.edu, Phone: 972-8835917.